Buy Coal India Ltd for the Target Rs. 450 by Motilal Oswal Financial Services Ltd
Modest volume growth; long-term thermal power dominance to remain intact
India’s total installed power capacity reached ~490GW as of Jul’25, grew at 7.8% CAGR over the past 15 years. Renewable energy (~237 GW, 49% share) has surpassed thermal capacity (~220 GW, 44% share), where RE and thermal grew at 10.9% and 6.5% CAGR, respectively, over the past 15 years. Despite decarbonization efforts, coal remains a critical source for India’s power demand, contributing ~65-75% of power generation. Therefore, with rising industrial/household activity, coal demand is expected to remain firm. Coal India (COAL) accounts for over ~70% of the total coal production in India (including captives/others), of which over 80% is supplied to the power sector, positioning it as a dominant player in the coal mining space.
? COAL’s earnings are expected to remain under pressure in FY26, driven by a lack of volume growth amid muted power demand as well as the rising share of captive/merchant mining during Apr-Jul’25. Moreover, subdued global coal prices will continue to cap COAL’s e-auction prices/demand. ? We trim our FY26/27E revenue and EBITDA (ex-OBR) by 2/6% and 5/9%, respectively, factoring in the lower volume and rising coal production from captive miners. We expect COAL to post a 2-4% volume CAGR for FY26/27E, while the higher share of e-auction volumes, with a modest premium of ~70% over FY26/27E, will support overall NSR and margins. ? At CMP, the stock is trading at 4x on FY27E EV/EBITDA at its 10-year historical average. We reiterate our BUY rating with a TP of INR450/share, valuing the stock at 4.5x FY27E EV/EBITDA.
